This
report has cleared the Treasury Inspector General for Tax Administration
disclosure review process and information determined to be restricted from
public release has been redacted from this document.

June 27, 2005

MEMORANDUM
FOR DAVID A. GRANT

DIRECTOR
OF PROCUREMENT

INTERNAL
REVENUE SERVICE

FROM:Daniel R. Devlin /s/ Daniel R. Devlin

Assistant Inspector General
for Audit (Headquarters Operations and

Exempt Organizations Programs)

SUBJECT:Audit of Estimating System and Related
Internal Controls (Audit #20051C0218)

The
Defense Contract Audit Agency (DCAA) examined the contractor’s Federal Sector December
22, 2004, estimating system to assure the contractor’s estimating system and
related internal controls comply with applicable laws and regulations, and are effective,
adequate, and operating effectively.

The
DCAA indicated that it is the contractor’s policy to not provide the DCAA with
internal audit reports and workpapers.The DCAA also said the contractor’s policy limits its ability to assess
the effectiveness of the contractor’s internal audit function in monitoring their
organizational, accounting, and operational controls.According to the DCAA, without access to
internal audit workpapers, it was unable to verify whether the contractor’s
internal audits covered the appropriate compliance steps, or whether the
internal auditors identified concerns that they would consider reportable.

The
DCAA opined that except for the qualification described above, the estimating
and related internal control policies and procedures of the contractor’s
Federal Sector are adequate.The DCAA
examined only the estimating system. Accordingly, the DCAA expresses no opinion on
the contractor’s system of internal controls taken as a whole.

The
information in this report should not be used for purposes other than those
intended without prior consultation with the Treasury Inspector General for Tax
Administration regarding their applicability.

If you have any questions, please
contact me at (202) 622-8500 or John R. Wright, Director, at (202) 927-7077.

Attachment

NOTICE:

The Office of Inspector General for Tax Administration has
no objection to the release of this report, at the discretion of the
contracting officer, to duly authorized representatives of the contractor.

The contractor information contained in this report is
proprietary information.The restrictions
of 18 U.S.C. § 1905 must be followed in releasing any information to the
public.

This report may not be released without the approval of
this office, except to an agency requesting the report for use in negotiating
or administering a contract with the contractor.